6 Financial Planning Tips for Millennials (and Everyone Else)

By Mitchell J. Smilowitz, CPA

You know it’s important to prepare for retirement. Social Security will only provide a portion of your retirement income. You’ll need to come up with the majority of money to support your retirement needs by saving during your working years and/or working longer.

At the same time, saving for retirement is difficult; there are many competing financial obligations. You have student loans to repay. You are providing for your family. Paying for a house. Saving for a child’s education. Maybe you’re supporting your parents. Funds to invest in retirement are scarce. How to begin?

First, remember this. As someone in your 30s or 40s, time is still on your side. You can take full advantage of the effects of compounding. But the longer you wait, the harder it becomes to save enough for retirement.

Following these 6 financial planning tips can propel you to break through the barriers to retirement savings and improve your ability to manage your finances.

If you are living paycheck-to-paycheck, start tracking your spending so you can identify places to cut expenses and begin saving without having to earn more money. Establishing a budget will help you keep your spending on track. When budgeting, consider the 50/30/20 rule: 50% of your take-home pay for necessities such as housing, food and health; 30% for discretionary spending such as restaurants, entertainment, charity and vacations; and 20% for savings.

Save enough to pay at least three-to-six months of expenses. Experts recommend about six months of savings for single individuals and families with primary breadwinners, while three months of savings is appropriate for dual-income families with similar incomes. These funds protect you in the event of an emergency where you or your spouse are unable to work. Place these funds in a high-yield savings account that you can readily access.

Once you have established an emergency fund, save as much as you can, as early as you can, in retirement accounts such as the JRB’s 403(b) Plan to take maximum advantage of compounding and tax savings. Here’s an example. Assuming a 6.5% rate of return, if you started saving $5,000 per year at age 30 and continued at the same rate to age 70, you’ll have over $1 million saved. If you wait until you are 45 to start, even doubling your contribution to $10,000 per year, you’ll have less than $680,000 at age 70. In addition to the benefit of compounding, saving for retirement also offers a valuable tax reduction strategy; every dollar you contribute reduces your taxable income.

Diversify your investments. After the dollar amount you contribute to your retirement plan, financial experts agree that your asset allocation is the next most important factor governing overall return on investment. The JRB’s Model Asset Allocation Portfolios show that even conservative retirement savers in their 40s and 50s allocate half of their assets to equities.

Take care of your family should the unexpected happen. Most people don’t have enough saved to take care of their family should something happen that prevents them from working. While the JRB’s Complimentary Insurance Program offers some support, you’ll also want to explore purchasing more comprehensive disability insurance and life insurance, especially if you have children. Remember to keep your beneficiary designations up-to-date and make sure you have a Will.

Establish a financial plan. At some point in this journey you’re likely to want a yardstick against which to measure your progress – a financial plan that identifies clear inputs and outcomes. When that time comes, call us. During the JRB’s complimentary financial consultation we will work with you to develop a plan that identifies realistic goals and a concrete strategy that allows you to achieve them.

Organizing your financial life so you can meet your short-term and long-term responsibilities can seem overwhelming. That’s where the JRB can assist. We understand the special challenges those working within the Conservative Movement face. Let us put our more-than-75-year track record of success to work for you. Please call us at 888-JRB-FREE (572-3733) or set up an appointment via email.

February 2023